Telangana HC Stays GST on Mineral Royalty, Citing Pending Supreme Court Constitutional Challenge.
Issue
Whether the levy of GST on royalty, District Mineral Foundation (DMF), and State Mineral Exploration Trust (SMET) contributions is unconstitutional, as the power to tax mineral rights falls exclusively with the State, and whether such payments constitute a “supply” subject to GST.
Facts
- The assessee challenged an order confirming GST on royalty/seigniorage, DMF, and SMET payments.
- The challenge was based on the constitutionality of the levy, arguing it violates Articles 14, 19, and 265.
- The assessee contended that taxation of mineral rights is an exclusive state power (Entry 50, List II) and that GST (Article 246A) cannot override this.
- It was argued that royalty is consideration for mineral rights, not a tax, and that DMF/SMET payments are merely routed through the assessee.
- The assessee pointed to the pending Supreme Court case (Udaipur Chambers of Commerce) on the same issue and requested similar interim relief granted in other Telangana HC cases (India Cements Ltd., MEIL–NCC (JV)).
Decision
- The Telangana High Court granted an interim stay on the operation of the order that had confirmed the GST demand.
- The stay remains in effect pending further adjudication, acknowledging the pending, larger constitutional challenge before the Supreme Court.
Key Takeaways
- The constitutionality of levying GST on mineral royalty is a highly contentious issue, currently sub judice before the Supreme Court.
- High Courts are granting interim stays on such GST demands, preventing coercive recovery until the Supreme Court delivers a final verdict on the matter.
- The core of the dispute is a fundamental jurisdictional question: does the power to levy GST on services override the State’s exclusive constitutional power to legislate on taxes on mineral rights?
- This provides immediate, temporary relief to taxpayers in the mining sector, protecting them from demands while the larger legal question is resolved.